Saturday, April 08, 2006

Toronto's Living Costs Rising, But Reasonable

High house prices and hikes for property tax, water and sewage bills far outstrip the city's inflation rate.

Toronto's inflation rate may be hovering around 2 per cent but someone forgot to tell the City of Toronto or the provincial government.

Homeowners could face an average property tax increase of 3 per cent for this year, almost double the city's 2005 inflation rate of 1.7 per cent.

City Hall has already cranked up water and sewage rates a further 9 per cent this year, on the back of a 6 per cent increase last year and 9 per cent in 2004.

University and college students got the news yesterday that Queen's Park is taking the freeze off tuition fees. An institution can raise fees as long as the average increase is capped at 5 per cent.

Throw in high real estate prices and stubbornly high gasoline prices and Torontonians have plenty to gripe about.

Last month, the Economist Intelligence Unit's latest rankings of the world's most expensive cities to live in showed Toronto moving up 13 places in the past two years.

But the good news is that Canada's largest city is still well down the list, at Number 47. Oslo climbed to the top spot, displacing Tokyo for the first time in 14 years.

"It is rare that I hear that Toronto has a high cost of living," said Jeffrey Rosin, managing director of Korn/Ferry Canada, an executive recruiting firm.

"In fact, I have hardly ever heard that."

Toronto's rich cultural and professional environment combined with a now-strong Canadian dollar has made the city an easy sell, Rosin said.

Some executives are asking for — and getting — added pay to compensate them for the relatively higher income taxes, but housing costs are not an issue, he added.

"If you are coming from a New York or a Chicago or many other cities, you are faced with the same dynamics with regard to the real estate market."

Toronto's consumer price index, which tracks the cost of a fixed basket of goods and services, has lagged the provincial and national averages for the past two years, according to Statistics Canada data.

That trend is a bit misleading because of natural gas rebates in 2004 and 2005, said StatsCan economist Ron Morency.

"If you exclude the two, it is much more in line with the rest of what is happening in Ontario."

Torontonians, at least those who pay for natural gas, will get another rebate this spring because the warmer-than-expected winter has caused gas prices to plunge.

While it's true that property tax increases in the past two years have outstripped Toronto's inflation rate, it's an unfair comparison, said Joe Pennachetti, chief financial officer for the City of Toronto.

The city budget must cope with wage settlements in excess of 3 per cent, he said.

Also, costs for things like road maintenance are rising far beyond 3 per cent given high demand for such services, Pennachetti said.

"We are talking about areas where the inflation rate is more like 4 or 5 per cent."

As for the 9 per cent jump in water and sewage bills, the city must raise enough money for much-needed investments in new infrastructure, he added.

Toronto's real estate prices continue to climb, albeit at a slower pace than in the past four years. Home buyers may be getting sticker shock, but affordability is still at reasonable levels, said Derek Holt, assistant chief economist at the Royal Bank of Canada.

Back in 1990, the average cost of carrying a detached bungalow in Toronto peaked at an eye-popping 64 per cent of pre-tax household income, and 48 per cent for Canada, he noted. "That is how inflated things were."